The Price Wars

Welcome back Food Junglers. Today, I wanted to ask a few questions and prompt a little discussion on the subject of the recent “price wars”, or “value wars”, that have started in the grocery and fast food industries, particularly in the United States.

I’m also experimenting with a more minimalist style today - no green boundaries and fewer pictures - so do let me know if this works for you. As always, any and all feedback is welcome! Let’s dig in.

It is no secret that grocery stores and fast food joints have issued the occasional discount or “meal deal”. I, for example, am extremely fond of the Tesco meal deal.

However, food inflation, which has not stopped rising since the Covid-19 pandemic, has distracted us from these seemingly great cost-cutting strategies.

Until now. It has come to the attention of many that food retailers and fast food restaurants in the US are racing to provide value for their customers who are tired of expensive meals. But, while this seems like a pleasant change of pace, I have a few questions.

The big picture.

In what has been dubbed “The Price Wars”, the biggest fast food restaurants and grocery stores across the country have released some pretty remarkable deals to win back American customers who have recently become much more price sensitive.

Wendy’s launched a $3 breakfast offer last month, McDonald’s rolled out a $5 value meal just this week, and Burger King’s US president indicated that the burger chain would also launch its own value meal.

Starbucks, too - known for rarely handing out promotions - announced a $6 breakfast sandwich and coffee combo. And these examples are not the only ones.

At a grocery level, Kroger, Costco, Walmart, and others, are promoting their new, cheaper, better quality, private label products - from Walmart-made oat milk to Trader Joe’s wine. Supposedly, this strategy will be used to attract those same price-sensitive customers.

Why is this happening?

The biggest reason for these deals seems to be inflation. American consumers are tired of paying more for their groceries and their restaurant meals, subsequently buying fewer things.

Grocery prices are about 26% higher than they were in 2019 and, in a recent survey of US consumers, 51% of respondents said they were buying more private-label products to save money on grocery bills.

When it comes to dining out, many fast food places have received backlash for aggressively increasing their prices. One McDonald’s franchise, for example, went viral for having an $18 Big Mac meal combo, a price that is comparable to some higher-end restaurants.

Whether it is due to climate change making some ingredients more expensive or some retailers not lowering their prices in the wake of the Covid-19 pandemic, many customers are finding that buying their regular basket of goods is unsustainable for their wallets.

Of course, the alleged support of some brands for Israel in the Israel-Palestine conflict saw some major backlash among younger customers, particularly in the Middle East.

Shared Responsibility.

It is clear, then, that big food brands are trying to win back loyalty through various value deals, whether to atone for their media sins or to prove that they still have value amidst an inflationary crisis.

However, who is going to bear the burden of these deals?

The initial reason for inflated prices across the food industry in the United States was, as McDonald’s USA president Joe Erlinger put it, increased labour and ingredients costs. Similarly, Starbucks raised their menu prices in 2022 due to higher food and labour costs as well.

But, while it would be fair to assume that these “price wars” have come as a result of lower input costs, labour and food costs still remain elevated. In fact, the United States is currently dealing with a bird flu outbreak that has proven to be fatal to millions of poultry and several dairy cows, causing the biggest meatpackers to scale back production.

Drought and poor climate around the world have also forced beef, cocoa, and wheat prices to achieve record highs this year. And, on top of all this, California has raised the minimum wage for fast food employees to $20 per hour (I’m sure this won’t be the only state to do this).

For these reasons input costs haven’t really changed and, arguably, have become much worse. So, who is going to pay for the production of the $5 Big Mac combo? How are massive food companies, who have allegedly struggled to reduce prices because of high input costs, going to consistently provide value to customers while input costs are still so high? Who, or what, will have to suffer to provide this value? I apologise for the excessive questioning, but I feel like these kinds of questions should be asked.

We’ve seen what happened to Red Lobster after the company announced an incredible meal deal and, spoiler alert, it doesn’t end well. Ultimately, I hope these giant food brands don’t resort to opaque tactics to both lure customers back and stay financially afloat.

Of course, if any of you, dear readers, have any ideas please feel free to reply to this email.